Company Reports

Paccar’s stock was down approximately 7% in intraday trading on April 30. We think the market reacted negatively to slowing sales growth. Paccar’s top line increased 2% year on year in the quarter, down from the low-double-digit sales growth posted in the fourth quarter of 2023. Operating margins were stronger than we had expected. The company reported 13.5% and 27.2% operating margins in the truck and parts segments, respectively. Positive sales growth and relatively stable operating margins in the quarter led us to increase our near-term expectations. As a result, our fair value estimate increased 4% to $88 per share, up from $84 previously.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

Paccar increased sales by 11% year on year (excluding financial services) to nearly $8.6 billion in the fourth quarter. Truck sales were up over 11%, while parts sales grew over 9%. Segment operating margins were relatively close to what the company reported last quarter. Operating margins for the truck segment came in at 14.3% and 26.9% for the parts business.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We elected to raise our fair value estimate by 8% to $80 (from $74 previously), following third-quarter earnings. The company’s numbers came in ahead of our expectations, leading us to increase our sales and margin expectations for 2023. Paccar’s stock reacted positively to the earnings update, sending shares 4% higher in intraday trading.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

The story for many of the heavy machinery names we cover over the past couple of years has been supply constraints. Gradually, this pressure has started to ease, providing players like Paccar an improved ability to get trucks out to customers. This is a key reason why we think new truck demand will be supported in the near term, despite easing freight demand. Keep in mind, average fleet ages have been elevated in the trucking industry, which has forced fleet owners to refresh their truck lines. On top of that, Paccar has done a good job releasing new trucks with better fuel economy. Said another way, customers can save on fuel and other operating costs by adopting Paccar’s new trucks.

We think Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We raised our fair value estimate to $73 (up from $69 previously), following Paccar’s strong first-quarter earnings. Management called out strong demand for its premium trucks and solid freight markets as key factors. This backdrop led Paccar to post $8 billion in truck and parts sales during the quarter (up 32% year on year). Truck sales showed the strongest gains (up 36%), as customers have increasingly turned toward Paccar’s premium brands, Peterbilt, Kenworth, and DAF. Paccar’s trucks offer customers better fuel efficiency, which is a key cost-savings lever. The company’s parts business also continued to show strength (up 17%). Recall, fleet ages continue to run at high levels, which has resulted in strong demand for Paccar's aftermarket parts.

We think Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We think Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We think Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

Supply chains continued to improve during the quarter, allowing Paccar to materially reduce the number of trucks waiting for components. Management noted that production build rates are at a much healthier pace today and are expected to improve further throughout 2023. This gives us confidence to forecast 6% sales growth in 2023 (up from 5% growth previously), despite the tough comparison with 2022, which displayed 25% year-on-year top-line growth. That said, we elected to temper our 2024 sales growth expectation from approximately 4% to 3%. This bakes in our view that truck markets will start to moderate a bit but will still be supported by solid backlogs. After making a few other minor tweaks to our cash flow model, our fair value estimate declined slightly to $103 per share, down from $105 previously.

We think Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

Narrow-moat-rated Paccar reported third-quarter results largely in line with our expectations. This led us to leave our $105 fair value estimate unchanged. The changes to our cash flow model essentially offset each other. We slightly raised our near-term sales and margin expectations, while tempering our 2023 estimates to account for a tougher comparison period in 2022. That said, we’re still expecting 5% top-line growth in 2023, compared with the nearly 20% sales growth we forecast for 2022. Our optimism is supported by strong fundamentals. Industry freight volumes continue to run at solid levels, despite some cooling in consumer markets.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

We continue to remain positive on the demand story for Paccar, despite supply headwinds. These players have been pressured by the chip shortage and higher manufacturing costs over the past year, challenging their ability to meet current demand. However, we believe freight activity will continue to be solid in the near term, giving us confidence that Paccar’s products will see strong demand from fleet owners over our forecast. In addition, we think it is important to note that industrial production continues to improve from year-end 2021. Given this backdrop, we raised our fair value estimate to $105 from $104 previously.

We believe Paccar will continue to be a top-two truck manufacturer, even with the eventual shift to autonomous and electric vehicles. The company has long been known for its premium truck brands, Kenworth, Peterbilt, and DAF. Paccar’s trucks are some of the strongest performing, most durable, and fuel-efficient on the market. These factors have led to the company’s strong brand reputation among fleet owners and truck drivers.

Narrow-moat Paccar held its investor day on June 1, where it dug further into its zero-emission vehicle strategy. Following the event, we raised our fair value estimate to $104 from $103. Management provided its 2022 sales outlook for the parts business, which is expected to grow between 12% and 15%. Supply headwinds have pushed fleet owners to run their trucks a lot longer than usual, resulting in strong demand for Paccar’s parts business in 2021 (demand strength has also continued into 2022). This backdrop gives us confidence to raise our sales outlook for the parts segment to 13.5% year-on-year growth in 2022, up from 11% annual growth.